Author: Abg. Miguel Ángel Saltos, Mgs.
Tax regulations and their impact on business activity are a subject of constant interest in Tax Law. This article in the first part presents an analysis of a company whose line of business is the breeding of shrimp larvae that could be applicable to several companies that operate in the same sector, in the second part we make a critical analysis of the repeal of the Article 9.1 of the Organic Law of the Internal Tax Regime (LORTI).
Analysis of the case of the company that is dedicated to the breeding of shrimp larvae
A company that operates in the field of shrimp larvae farming, made a significant investment in machinery, equipment and capital goods, classified as new and productive according to article 13 of the Organic Code of Production, Trade and Investment (COPCI). . This investment was mainly oriented towards the acquisition of a larvae laboratory during fiscal year 2019.
A matter of interest lies in the right of the company to continue benefiting from the proportional exemption from Income Tax for fiscal years 2022 and 2023. This exemption, attributable to its cost center, was already applied during fiscal years 2019, 2020 and 2021, according to the provisions of article 9.1 of the LORTI, repealed on December 31, 2021.
This old article allowed an exemption from income tax for new and productive investments for a period of five years. In this case, the company applied said exemption during the first three years of the period.
The question then arises: Despite the repeal of Art. 9.1 of the Organic Law of the Internal Tax Regime, could the company continue to benefit from the exemption for the remaining fiscal years? This question was presented by a taxpayer as a query to the Internal Revenue Service so that this tax administration could offer its response.
In light of the principle of legality in tax matters, the Internal Revenue Service determined that the company is still entitled to the exemption for the remaining fiscal years of the initial five-year period, given that the investment was made before the repeal of the tax. law.
Critical analysis of the repeal of Article 9.1 of the Organic Law of the Internal Tax Regime
Article 9.1, which is currently repealed by application of the Law s/n, RO 587-3S, 29-XI-2021, was established to promote growth and investment in various economic spheres perceived as essential for the State. Its elimination, however, could cause a negative effect in these fields, especially in the agribusiness, pharmaceutical, green energy, and logistics services for foreign trade sectors, among others. These areas have been of great relevance for the Ecuadorian economy and fiscal relief has played a crucial role in attracting domestic and foreign investment.
The abolition could discourage the formation of new companies and the development of productive investments, since the tax relief implied a considerable tax benefit that balanced, to some extent, the risk intrinsic to entrepreneurship. In a developing economy like Ecuador’s, investment is essential for economic progress and job creation. Without attractive tax incentives, investors may turn to jurisdictions with more lenient tax policies, causing a detrimental impact on the local economy.
Furthermore, this abolition could exacerbate geographic inequity in Ecuador. The original regulation was established to encourage economic growth outside the main cities of the country, Quito and Guayaquil. Without this motivation, there could be an agglomeration of investments in these urban areas, thus neglecting the development of the rest of the country.
In a global environment where competition to attract investment is intense, the removal of Article 9.1 could be an impediment to Ecuador’s economic progress. The authorities should carefully examine the consequences of such abolition and assess the possibility of implementing alternatives that do not discourage investment.
It should be noted that this is an opinion based on my interpretation of the regulation and its impact on the economic and social scenario of Ecuador. As always, the legal dialogue is open and the repercussions of these reforms will be observed in the long term.
To conclude, although the tax system must always be a balance between the need for State collection and the promotion of the economy, it is crucial to adopt policies that promote investment and growth. In my opinion, the elimination of Article 9.1 could have a detrimental effect on the Ecuadorian economy, and the authorities should consider implementing alternative measures to continue promoting productive investment in the country.
Abg. Miguel Angel Saltos, Mgs.: miguel.saltos@lince-saltos.com
